Why you should CUT UP your ATM Debit card, but KEEP your Credit card!

Ok, get ready for some unconventional wisdom. I know that every other financial guru will probably tell you otherwise, but they are wrong and I am going to tell you why. Judging by the responses I got just by telling people the title of this article, it is sure to create a lot of interest, misunderstanding and speculation. But trust me, by the time you finish reading this article you will see things in another light and will hurriedly be looking for a pair of scissors to cut up your ATM Debit card.

Although I actually talk in detail about this same recommendation in my book (pages 19-21), I was again reminded of its importance recently after attending a speaking engagement with Frank Abagnale. You may recall that he was portrayed by Leonardo DiCaprio in the 2002 movie Catch Me if You Can which chronicled his early life as a confidence man, specifically the cashing $2.5 million in fraudulent checks before being caught by the authorities. In exchange for a reduced prison sentence, Mr. Abagnale agreed to work with the FBI for 5 years, but after “going straight,” he has now been voluntarily associated with them for over 35 years. As he was describing some of the most ingenious scams he has seen perpetrated over the years, he too supports my “Credit, Not Debit” philosophy, something few people practice, or even know about (until now).

Before we get into the details, you need to understand a simple concept and answer a question: If somebody is going to steal money, would you prefer it be yours, or that of somebody else? Obviously, you chose the latter and now I am going to explain how this applies to credit cards and ATM debit cards.

Simply put, when you use an ATM debit card, you are spending YOUR money; when you use a credit card, you are spending THEIR money. An ATM debit card (or a regular check for that matter) has direct access to the funds in your checking account, whereas a credit card does not. If you loose your ATM debit card, it gets stolen (or the numbers copied), or it gets cloned (increasingly more popular), and it falls into the hands of a perpetrator, they now have full direct access to ALL of the funds in your attached checking account. Your life savings, rent money, car payment, college tuition, grocery allowance, emergency fund, etc. – anything and everything possibly in that account -- are all at risk and could be completely wiped out before you finish reading this article. Have I got your attention yet?

Used responsibly, credit cards are a great tool and offer extensive consumer protections not available with an ATM debit card. By using a credit card, it puts THEIR money at risk, not YOURS. Under federal law, consumer liability for fraudulent credit card charges is limited to $50, and most credit companies even reduce this to -0-. About once a year, my credit number is either compromised or I run into a dispute with a merchant -- when this happens, I simply call my credit card company and the charge is removed. If I had an ATM debit card, more likely than not, I would be out these funds, or at the very least, have a time consuming fight on my hands.

Although there are many similar stories, Mr. Abagnale told of a scam in which a computer system was hacked and the card numbers of thousands of consumers was stolen and used by the thieves. Those with ATM debit cards were COMPLETELY WIPED OUT and those with credit cards lost nothing. It’s not to say that your ATM debit cards have no recourse, but it will take MONTHS of fighting with your bank and possibly pursuing legal action with no guarantee of success, during which time you will not have access to YOUR money. In this particular case, there were thousands of college students who could not register for classes because their tuition funds were gone. Which one would you rather be?

Personally, I practice what I preach. For the past 15 years, I have not carried an ATM debit card, but rather a credit card. I use my credit card for every purchase possible and then pay the bill in full at the end of the month (just like a debit card!) to avoid finance charges. Not only does this give me an easy reconciliation, but also the ultimate consumer protection since it is THEIR money at risk, not mine. Whenever the bank mails me a new ATM debit card, I cut it up immediately [and then call the bank to formally cancel it].